TAXATION 


♦ 




INTELLIGENT CRITICISM 

ON 

A Mortgage Tax* The Tax on Savings Bank 
Surplus* Tax on Capital and Surplus of 
Banks and Trust Companies* The Tax 
on Stock Sales* The Liquor Li¬ 
cense Tax* Application and 
Apportionment of Taxes 
and Revenues* 

To whom it may concern: 

The object of the taxation of mortgages upon 
realty is one of the most important economic ques¬ 
tions that has ever confronted the people of the 
State of New York, by reason of its magnitude and 
far reaching effects, and should not be treated in a 
flippant and off-hand manner, but with due and 
proper consideration, worthy of the subject. Every¬ 
body seems ready to express an opinion about it, 
but there are very few that have any reason pro or 
con, and their opinion is founded upon somebody 
else’s opinion that has no foundation by a competent 
knowledge of the matters affected. The object of 
this pamphlet is to give information that may be 
of use pro or con in the discussion. 








The new mortgage tax of five mills on a dollar 
(Five dollars a thousand), annually on all mort¬ 
gages on real estate recorded since July 1st, 1905, 
under Chapter 729 of the laws of 1905, is denounced 
by some persons, but an intelligent criticism of its 
faults and of its benefits is not made either by the 
lender (mortgagee) or the borrower (mortgagor) 
or editors or some legislators. The purpose of 
this pamphlet is to answer in part the fault-finding 
points made by grumblers, who are apparently only 
those who have had a narrow or short experience 
that affects them personally, and in some instances 
we will find that others join in the chorus against 
it, because they think that many persons are against 
it, but it will appear on further investigation that 
all those against it are blindly against any tax on 
mortgages, and also against any tax on personal 
property of any kind, and also against any tax on 
the improvements on land, and contend that all 
taxes should be on the bare land, and still others 
that all land should be taxed equally, according to 
area, without regard to location or improvements. 

It is not our purpose to answer or illustrate all 
the propositions above recited, because civilization 
is too far advanced in settled communities to ever 
have any need of seriously discussing any of them 
excepting that of the tax on mortgages, which is 
now in existence, under an old law, which has been 
in existence for more than half a century, and the 
new law of 1905, as to new mortgages. 

An intelligent criticism appears to be needed 
just now to silence the tongues of demagogues, of 
the ignorant, and capitalists in corporations, now 
exempt from taxation, and individuals that were 
so situated, that under the former law they still are 
and were exempt from the general rate of taxation 
in whole or in part on all personal property; be it 
a stock of goods or any production or stocks or 
bonds in any kind of corporation, or money in bank 


Gift 

Author 

(Person) 


Z\ D ? 05 



3 


or invested in any kind of personal property, by 
deducting the mortgage debt from the assessed 
value of such personal property by the “swearing- 
off process/’ as it is called by the newspapers. 
This process consisted and still consists in allow¬ 
ing a corporation, firm or individual to appear be¬ 
fore the local assessors, when their name is on the 
roll, and swear that the amount of debts owing by 
him or them was equal to or in excess of all the 
assessed value of personal property he or they 
owned. This allowed, and still allows, such debts 
of every and any kind to be deducted from the 
amount on the assessment roll. A savings bank 
or insurance company, or any other corporation 
with assets exempt from taxation, could and did 
loan money out of their assets on mortgages, which 
the borrower could take the mortgage debt out of 
the assessed value of his personal property; thus 
it was and is a double exemption of the amount of 
personal property involved in the transaction— 
the capital in the mortgage and the personal prop¬ 
erty of the mortgagor. 

Mercantile firms could and did organize as a cor¬ 
poration (and there are many of them in our 
cities), and buy land, and build and mortgage it 
to the fullest extent to a corporation at a low 
rate of interest, say four and one-half per cent., 
whose assets are exempt from taxation; when their 
large stock of goods is upon the assessment roll for 
taxation, they swear it off by having the amount 
of the mortgage debt deducted from the assessed 
value. Thus they can carry their loan and their 
capital and save two per cent, or more local tax 
on their stock, so that, in fact, they have an in¬ 
vestment that costs only about two and one-half 
per cent, to carry. 

About twelve years ago the public was greatly 
astonished by the dry-goods firm, of which ex-Judge 
Henry Hilton was a member, when a mortgage of 


4 


a million and a quarter dollars was placed- upon 
the Stewart Building for money loaned to them by 
Mrs. Hettie Green. It was well known that the 
firm could not be insolvent. When the assessment 
rolls were made up in the following spring, it ap¬ 
peared that the stock of goods were assessed to 
the firm for something like the amount of the mort¬ 
gage. It was deducted from the assessment, which 
left little or nothing to be taxed. 

The mortgage was taxable in the hands of Mrs. 
Hettie Green, but her residence could not be 
found, and lienee she escaped the local tax on the 
mortgage, which, at that time, was about 22 mills 
on the dollar in New York City. 

(The amount of the assessed value of the per¬ 
sonal property of corporations and mercantile 
firms, that are held for taxation after the annual 
“swearing-off” process, should be published the 
same as the assessments on real estate.) 

Before the new law of 1905, the State Board 
of Tax Commissioners, in their report for 1904, 
say: 

“The present demoralized condition of affairs 
should stop now. All mortgages should be uni¬ 
formly taxed or all should be exempt. At present 
but few mortgages upon realty are placed upon 
the rolls, and by far the greater number of these 
are small mortgages, belonging to widows and 
orphans and estates, which can least of all afford 
to bear the burden of taxation.” 

Now, under the new law, the holder of such mort¬ 
gage cannot “swear-off” his tax of five mills on the 
dollar, and any and all corporations (with few excep¬ 
tions), that invest any of their assets or the assets 
of other persons under their control in mortgages, 
must pay the annual tax of five mills, while, under 
the old law, they or their assets were exempt from 
all taxation. This exemption applied to such a 
wide class of corporations that held and controlled 


o 


so much capital and had money to loan, that an in¬ 
dividual or partnership or an estate that had money 
to invest could not compete with them and get a 
fair rate of interest, because of the heavy annual 
local tax would reduce the interest by two or 
more per cent., and then get less net than those cor¬ 
porations did on a loan of four per cent, annual 
interest. This crowded individual capitalists out 
of the loan market and left them to take such risks 
as were rejected by the prudent investors, for which 
risk a higher rate of interest was asked and paid, 
and all the exactions that the law allowed, and 
more, too, in the shape of lawyers’ fees, were often 
required, and when the pinch of payment of the 
principal came, a foreclosure of the mortgage was 
made, and at the sale none could be found who 
would pay more than the mortgage and costs, and 
the plaintiff, the holder of the mortgage, gladly 
took the property. 

Other large mercantile corporations and in¬ 
dividuals now do the same way and the stock of 
goods they carry are exempted from local tax, by 
deducting a mortgage debt. 

This deduction of the debt can continue under 
the new law as to all mortgages that, are given. It 
is only the holder that has to pay the five mills tax 
on the mortgage. 

An assignment of an existing mortgage is not sub¬ 
ject to the tax same as is an original mortgage. 
Neither is an extension of an exempt mortgage tax¬ 
able under this law. 

Although the extension of a mortgage is not now 
taxable under the law, holders of mortgages that 
become due try to obtain the amount of the tax 
added on to the former interest or threaten to call 
in the mortgage. In many cases it works that way. 
They get the tax added on in the sum of interest up 
to the legal rate of interest. Large institutions do 
not make any extra demand on old mortgages. Never 


6 


has so few mortgages been called in as at present. 
The holders fear that they may not get as good 
rate of interest as at present. That money may 
be diverted from stocks and bonds and municipal 
and state securities, and be invested in mortgages 
which will greatly affect the interest rate. 

The tax being added to the rate of interest what¬ 
ever that may be agreed upon is the origin of much 
of the faultfinding with the law. 

But say some faultfinding persons (every tax 
when it is first imposed is regarded as a grievance ) 
the borrower has to pay the tax in the way of in¬ 
creased interest asked by the lender to the amount 
of the five mills tax! 

The consumer and user always has to pay the tax 
in whole or in part, and no legislation can prevent 
it! Every boy big enough to smoke a cigarette ana 
every beer drinker and tobacco user when the U. 
S. tax was first put on such articles, knows and felt 
that he had to pay the tax in the increased cost of 
his package and bottle of beer. The same is true 
of any tax on tea and coffee, and the liquor license 
tax in New York City. But it is .soon forgotten and 
matters <?o on about the same as before such tax. 
The U. S. tariff for revenue had the same effect, 
but when it was increased to be for protection of 
home transactions, then it became a grievance that 
caused complaint. 

This new mortgage tax law of 1905 is nothing 
more nor less than a fixed tax on capital of five mills 
per annum without any deduction. This is the 
lowest rate of taxation of any kind of property or 
representative of property in the State of New 
York! 

The tax on Savings Bank surplus is one per cem. 

The tax on Banking capital and surplus and un¬ 
divided profits is one per cent. The same amount 
is on Trust Companies. 

An individual banker or firm is taxed upon 


the capital invested in the business at the local tax 
rate without any deduction of any debts. 

Neither the borrower or the lender has any cause 
of complaint. The borrower can well afford to pay 
the annual tax of five mills because: 

1. He can deduct the amount of the mortgage 
debt from any assessment of his personal property, 
household furniture, stock in trade and the like, 
which is taxable at the general tax rate of 
fifteen mills on the dollar in New York City. 

2. This cannot be done with any other 
class of investment in exempt property, such as U. 
S. bonds, city and state and municipal secu¬ 
rities that are exempt from taxation. 

3. He can invest the proceeds in any 
other taxable personal property, and in his 
business, and get more interest, if he can, than 
he pays on the mortgage loan. 

4. He will have a less tax rate to pay on his real 
estate that is mortgaged, which may be much more 
reduction than the tax on the mortgage, unless the 
mortgage is near the value of the land. 

5. The great demand for the investment in this 
kind of security will reduce the market rate of in¬ 
terest, and make it but little higher than is paid by 
state and municipal bonds. 

Anything that reduces the general rate of taxa¬ 
tion affects the high tax on all real and personal 
property. 

The landowner can well afford to pay this mort¬ 
gage tax, because by it the tax rate may be reduced 
as much or more than the five mills tax which he 
pays to the holder of the mortgage. 

This can be demonstrated by a plain mathemat¬ 
ical calculation. Say the tax rate is fifteen mills on 
all real and personal property assessed. If all this 


property is mortgaged it will yield at five mills one- 
third of the amount required; this will reduce the 
above rate 33 1/3 per cent, to ten mills. If two- 
thirds of it is mortgaged (that is about the average 
amount of mortgage outstanding annually), it will 
yield two-thirds of 33 1/3 which is 22 2/9 per cent. 
One-half of this goes to the State. Therefore it 
will reduce the rate 11 and 1/9 per cent, on tax 
bills. 

The apportionment of this mortgage tax of one- 
half of the net amount to the State treasurer in 
reality makes it less than the proportion that the 
State Board of Equalization apportions the direct 
State tax on New York County, which was 54 per 
cent, of the total State tax last year. 

If it was apportioned according to the assessed 
value of the real and personal property in the 
county, it would be about seventy-two per cent. 

If the State did not get the half, the sum would 
have to be raised by general tax levy which would be 
added to the local tax bill. In the City of New 
York the proportion of State tax paid is 54 per 
cent., therefore, add this amount to the half already 
retained by the city for local purposes and it makes 
54 per cent, of the one-half, which is 77 per cent, of 
the amount of the net mortgage tax that will be 
applied to reduce local direct taxes in the City of 
New York. There are in fact a very few mortgages 
in the city that will be so far below the assessed 
value of the real property they cover as have to 
bear any portion of this five mill tax, when they 
come to pay taxes on their property. 

An estimate of the amount of revenue this tax 
will yield in the City of New York when it is in 
full operation can be quite accurate as follows: 
The amount of mortgages recorded annually is 
about One thousand million dollars. The average 
life of a mortgage is three years. It will, therefore, 
take three years to have the tax applied to nearly 


9 


all tlie mortgages. The total amount at the end 
of the last year will be Three thousand million 
dollars. This will yield Fifteen million 
dollars. One-lialf of this Seven million and one- 
lialf will be applied to reduce the direct local tax 
levy which will be about Eighty million dollars. 
This is about ten per cent, reduction on all local 
tax bills at the present rate of fifteen mills. If the 
rate is made less by other modes of taxation the 
amount of deduction will be proportionately less. 
A deduction of ten per cent, on a tax bill of $100 
will pay the tax of five mills on every Two thou¬ 
sand dollars of a mortgage. 

The lender can well afford to pay this tax of five 
mills on the mortgage. 

1. He may be situated so that the mortgage in 
his hands and other personal property would other¬ 
wise be taxable at the local rate of fifteen mills. 

2. If he invests in any other security, such as 
bank and trust companys’ stock he will be taxed 
one per cent, without any deduction for any cause. 

3. If he retains liis capital or invests it in real 
estate, it is taxable at the local rate. 

4. If he invests in IT. S. Government or muni¬ 
cipal bonds exempt from taxation, he gets a smaller 
return from the investment than in a mortgage at 
as low rate as 4Vo per cent, interest, and tax in¬ 
cluded. 

5. No other investment is so safe, and it will 
yield a larger net return than if invested in any 
other property. 

6. If the risk is to be hazardous for any cause, the 
* lender can increase the interest and tax up to six 

per cent, and may resort to getting more, the same 
as is now done in some cases. 


10 


7. If the money is invested on property out of the 
State by a resident of this State, the property is 
taxable at the local tax rate of the locality of the 
holder. 

8. The mortgage is not subject to any local tax 
or special assessment for any purpose. 

9. The tax is equal in every part of the State, 
therefore he does not have to change his residence 
to seek lower taxation. 

Some persons find fault because there is any tax 
on mortgages, and others claim that a recording 
tax of five mills paid “once for all” would be better 
than any other N plan! 

Do they think that the mortgage debt should be 
deducted from the personal property of the mort¬ 
gagor every year, same as now, so long as it runs? 

This part of the proposition need not be dis¬ 
cussed. 

If the debt is not allowed to be deducted from per¬ 
sonal property assessment, this would mean that 
every farmer, every manufacturer, every merchant 
and every holder of personal property would be li¬ 
able to be taxed for their value! 

Then, say that the recording tax be deducted for 
one year. That only defers the same trouble that 
will arise the next year. 

These propositions have only to be stated and 
they refute themselves by reason of their absurdity. 

To make the rate less than five mills will injure 
the price of State and municipal bonds, because this 
security is preferable. 

But then, say these persons, we are in favor of a 
tax on land only. Let all improvements on land 
and all personal property be exempt from taxation! 

They are pleased to call it the “Henry George 
plan.” 

Now, in reality this plan, which was discovered 


11 


by Henry George in the Chinese laundries in San 
Francisco and brought to New York in connection 
with Socialism, is more than four thousand years 
old in China, where it has been in use for many 
thousand years. 

The late Thomas G. Shearman called it the 
natural system of taxation, because it arose from a 
state of nature, when there was nothing else to tax 
apart from personal service exactions—no houses 
or personal property and little demand for public 
revenue and large land owners. China has not 
made progress enough to outgrow her ancient sys¬ 
tem of taxation. It may do for a time in a com¬ 
munity in its swaddling clothes, like New Zealand 
and China, where little public revenue is used or 
required, but can have no place in a nation of di¬ 
verse and wide commercial and productive re¬ 
sources, and wide distribution of wealth, and where 
the large and diversified uses of public revenue 
among the people requires the careful skill and in¬ 
telligence of the, resources from which it can be 
drawn, in justice and equality, with the least hard¬ 
ship, and be for the regard of the “greatest good to 
the greatest number.” 

The public revenue and its uses demand in the 
State of New York for all purposes annually is 
more than 44 dollars per capita for every man, 
woman and child within its borders. 

The amount required from real estate and its im¬ 
provements is now more than one-third of its net 
income annually at 5 per cent, after deducting the 
cost and expense of its care and maintenance. 

Personal property now pays only 9% per cent, 
of the taxes imposed on assessed property. It has 
been diminishing each year from 22 per cent, in 
1870. In 1898 it was 14 6/10 per cent, of the entire 
tax on property. 

This does not include the local school and high- 


12 


way tax, which is still heavier on real estate than 
the above proportion of general taxes. 

The annual local school tax in the State of New 
York is double the amount of the tax for Town and 
County purposes combined, and one-third the total 
amount of all the taxes in the State. This school 
tax does not include the State tax for local school 
purposes. The amount of highway tax has never 
been compiled. 

The tax for local school purposes in the City of 
New York is only three and one-half times less 
than the total tax for City purposes and five times 
the total amount of the County taxes in Greater 
New York. The school tax does not include the 
interest on the capital invested. 

The value of public school property in the State 
in 1904 was Ninety million dollars, and for private 
schools, colleges and universities, Sixty-two million 
dollars, and for churches, parsonages and clerical 
exemptions One hundred and eighty-two million 
dollars. 

The value of other public property (including 
parks, city, was Seven hundred and seventy-two 
million, and of Town, fourteen million, and of Vil¬ 
lage, Six and one-half million. 

In New York City the public school property was 
at Fifty-six million dollars. 

There is intelligent common sense among us that 
does not need any “exclusion act” to prevent the 
introduction of Chinese political economy among 
us, neither does it desire that kind of civilization 
from any other source. 

This mortgage tax, when in full operation, will 
relieve in part the heavy tax on land, as we have 
before seen. This is what is now needed by rent- 
payers and land cultivators. This is gradually now 
being recognized by our Legislature. 

The net receipts of this mortgage tax is divided 
as follows: 



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In eacli county (excepting Greater New York, 
which retains one-half) one-half of the net receipts 
shall he paid to the State and the other half to 
the county, to be apportioned by the Board of Su¬ 
pervisors. In towns, one-half of the tax shall be 
applied for school purposes and the other half to 
payment of State, county, and city, and village, 
and town expenses. 

The tax on Savings Bank surplus of one per cent, 
is eminently just and proper. The surplus does 
not belong to the Savings Banks, It was withheld 
from depositors whose accounts have been closed 
by death or withdrawn, and can never be restored 
to them or their heirs in any event. By taxing it 
will relieve taxation r on other property and thus 
be of some public benefit. Their assets are not 
taxed and depositors must look to them for se¬ 
curity. 

The State tax upon Savings Banks surplus in 
1904 amounted ^;o $770,000, while the State direct 
tax was $968,041.89 on real and personal property. 
It is obvious that the State direct tax was small 
because of the amount of the tax on Savings Banks. 

Savings Banks are allowed to take depositors’ 
money to the extent of Three thousand dollars each 
without the depositor or the bank being liable for 
any tax thereon. They never pay the depositor 
more than four per cent, interest, however long they 
may have it. The average rate of interest they pay 
is less than two per cent., caused by the rules in 
regard to the length of time of the deposits. 

The tax of two cents on each share of $100 or less 
on stock sales and the payment thereof to the State 
Comptroller for State purposes is just and fair. 
The business is derived from all parts of the State 
and from outside States and countries. The Presi¬ 
dent of a bank in Buffalo, or Syracuse, or Albany, 
or elsewhere, if he buys stock at the N. Y. Stock 


14 


Exchange, must pay this tax. In no instance is it 
paid by the broker or agent that negotiates or com¬ 
pletes the transaction of sale. The N. Y. Stock 
Exchange and Board of Brokers have a rule that 
any member that pays the tax for the sale shall be 
expelled from the Board. The tax is so small that 
it in no way interferes or affects the market trans¬ 
actions in N. Y. City. Some worthless stocks may 
be affected in price by it, although it is small for 
the usual transactions in such instances. 

The tax on stock sales is not a tax on commerce, 
like the tariff, nor on consumption, like a tax on 
goods and manufactured articles, nor a tax on pro¬ 
duction, nor on the necessities of life, like a tax 
on water and articles of food and on land and rent. 
The trading and dealing in stocks and paper 
values, that only represent something elsewhere, 
cannot be called commerce, it lias the element of 
gambling in it which makes it enticing. To tax 
such transactions relieves, in part, the necessity 
of taxes on more useful occupations and articles of 
necessity. The Spanish war tax of 1898, imposing 
a two cent stamp on each check, was on the same 
principle. 

The liquor license tax in New York City is drawn 
indirectly from all class of persons who form ever} r 
locality, and the apportionment of one-lialf the pro¬ 
ceeds for State purposes and the other half for local 
uses, is very fair and just to city taxpayers, when 
we reflect that 54 per cent, of the direct tax for 
State purposes must be paid by property owners in 
the city. 

It has been claimed by some that the annual 
mortgage tax should not be made to apply to pub¬ 
lic utility corporations, because they are taxed in 
several other ways; that it will impede the sale and 
negotiation of such bonds and mortgages every¬ 
where. 


15 


There is nothing" in this objection. The trustee 
is to pay the tax. We have already seen that it 
will, when in full operation, reduce the tax rate 
on all real estate, more than the amount of the 
tax. This will reduce the tax on the public 
utility corporations. The personal property is not 
included in the mortgage. 

It is safe to say that an enlightened public opin¬ 
ion will demand that the annual tax of five mills 
on the dollar of each mortgage on realty and also 
all the other taxes on banks and trust companies, 
the stock sale tax and the liquor license tax, are 
here to stay. 

They appear to have been made with due de¬ 
liberation, and may be better than the Legislature 
knew. 

The writer believes them all to be about as near 
right as can be expected, where so many interests 
are affected. The practical working may develop 
the need of something more to make them more 
effective, but the principles upon which they are 
founded are sound, and are urgently needed to be 
applied among us. 

A word to the reader: Do not find fault or criti¬ 
cise a matter, unless you know about it. Your 
listeners may know more about it than you do, and 
his opinion of your statements will not be one of 
a favorable appreciation of your intelligence. 

The foregoing facts are stubborn things to be con¬ 
sidered, and cannot be disregarded with impunity, 
or intelligently denied, and are submitted to the 
consideration of an enlightened public approval, 
maintenance and support 


PRO P>ONO PUBLICO. 



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